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ENERGY: Positive signs emerging

22 February 2018 - 12:55
Charlotte Mathews

Government is leaning more towards private-sector involvement in energy projects and Eskom’s restructuring as pressure mounts to spend on other priorities.

Spending on energy projects over the next three years will total R218.8bn, mostly through Eskom, representing about a quarter of public-sector infrastructure spend. At the same time, public-private partnerships (PPPs) in energy, municipal solid waste and accommodation projects are going to grow, treasury says, and it is looking at ways to streamline PPPs by reducing decision-making timelines and restrictive rules. Charles Kieck, chief energy economist and CEO of independent commodity researchers Afriforesight, welcomes the budget’s silence on funds for nuclear procurement along with the renewed commitment to buy power from independent producers of renewable energy.

As one of government’s "confidence-boosting measures", the minister of energy has instructed Eskom to conclude all outstanding power-purchase agreements with independent renewable power producers. Government has guaranteed Eskom’s procurement of up to R200bn of renewable energy from the private sector. By March 2018 the value of signed projects will be R122.2bn. Eskom has procured 6,426 megawatts (MW) of renewable power out of a commitment to procure 14,725MW in total. So far 3,774MW has been connected to the grid. SA Wind Energy Association chief executive Brenda Martin says the budget did not contain any positive new announcements for the renewable energy industry. But she was encouraged by President Cyril Ramaphosa’s state of the nation address, in which he emphasised the need to rebuild the economy and grow the manufacturing sector, which are areas the renewable energy industry will support.

The total amount allocated for energy projects over three years includes completing the R145bn Medupi power station by 2020 and the R161.4bn Kusile by 2022, as well as various grid projects. Government will spend R17.3bn on grid and stand-alone electricity projects, providing 625,000 new grid connections and giving an additional 20,000 households nongrid power. The programme to roll out solar water heaters will continue but the amount allocated will fall to R442.7m in 2020/2021 from R742.5m in the past year because of budget constraints.

Levies on fuel this year will increase by 52c/l, including 22c for the general fuel levy and 30c for the Road Accident Fund. Taxes will make up 38.4% of the current Gauteng pump price in February of 93 octane fuel and 41.3% of the price of diesel, up from 36% and 39% in 2017/2018. Kieck says the increase in the fuel levy can be absorbed relatively easily because, owing to the strong rand and lower oil prices, local fuel prices fell in January and February. On current trends, they will fall again in March. Gigaba says carbon tax will be implemented from January 1 2019. The new tax, which will be set at R120/t of emissions but will allow certain offsets, will enable SA to meet its commitments under the 2015 Paris Agreement of the UN Framework Convention on Climate Change. The department of environmental affairs also plans to publish shortly a brief which would use fiscal and regulatory measures to improve water-resource management, reduce emissions and encourage recycling, Gigaba says.

Simphiwe Masuku, a tax lawyer at attorneys Norton Rose Fulbright SA, says the implementation date for the first phase of carbon tax is in line with the firm’s expectations. A few changes are likely to be made to the draft bill that was published for comment in mid-December and the final bill should be tabled in parliament by the middle of the year. There is still uncertainty about the carbon offset regulations, which could be published by midyear.

Andrew Wellsted, the firm’s head of tax, says the proposed carbon tax has aroused huge opposition from the private sector but apart from enabling SA to meet its climate-change commitments it also creates a new source of revenue for the fiscus.